Mitie Group Plc – Decent Fundamental Growth Trajectory
Mitie Group Plc (LON: MTO) is a FTSE All-Share listed facilities management and professional services Company, which operates in 149 different nationalities. It was founded in 1987.
On 25th June 2020, the Group will announce its full-year results for FY20.The AGM will take place on 28 July 2020.
Recent News
On 18th June 2020, the Group announced the appointment of Pradyumna Pandit as a newly created role of Managing Director of Sustainability and Energy Services.
On 8th June 2020,the Group accelerated with Groupe PSA contract with GBP 5.2 million extensions for another two years.
COVID-19 Update
On 27th March 2020,the Group provided a COVID-19 update. In this update, the Mitie Group said that it could not provide any guidance for the next financial year and it will not pay a final dividend for FY20 due to COVID-19 outbreak. Over the next 12 months, the Company has reviewed its cost base and spotted approximately GBP 25 million of savings. The Board and executive team have committed to cutting their salaries and fees by 20 per cent and 30 per cent, respectively, for at least the next three months. For the nine months to 31st December 2019, the Group traded in line with anticipations though it has experienced a material downturn over the past 2 weeks. In the Finance, Professional & Banking sector, trading is expected to stay close to normal levels, while branches are open. The demand is increasing in Cleaning & Security services. The Group had GBP 427 million in facilities available, at the time of update.
Share Price Performance
1-Year Chart as at June-22-2020, before the market close (Source: Refinitiv, Thomson Reuters)
Mitie Group Plc’s shares were trading at GBX 79.53 on 22nd June 2020 (before the market close at 11:30 AM GMT+1), which was up by 1.96% against the last day closing price. Stock 52 weeks High and Low are GBX 170.10/GBX 55.14.
From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.
Valuation Methodology
Valuation Metrics
(Source: LSE)
As on 29th May 2020, the Price to Earnings and EV/EBITDA multiples of the MTO were 18.6x and 3.8x, respectively, and the same multiples were lower as compared with the Support Services industry. It is reflecting that the Company is trading at a lower multiple as compared to its peers.
Growth Catalysts and Key Risks
In the nine-month period from 1 April 2019 to 31 December 2019, the total revenue growth was approximately 6 per cent (including the acquisition of VSG), with good growth in the Business Services and Specialist Services Divisions. The Group is exposed to the effects of political and economic risks, as the market expects macro-economic uncertainty or downturn in the UK economy.
Conclusion
The Group continues to expect the operating profit before other items and revenues for FY20 to be in line with the guidance. InH2 FY20, the average daily net debt was GBP 216 million (excluding the impact of IFRS16). Moreover, the Group is starting to see discretionary project work in both Technical and Fire & Security Services (approximately 15 per cent of Group Revenue) being significantly deferred, alongside abridged demand from Property Managers, Transport & Logistics, Manufacturing, and general office-based clients. The Group expects that this trend will continue to accelerate in FY21, while the Coronavirus situation continues. Further, the Company has unveiled plans to target net-zero carbon emission by 2050. As financing markets normalise, Mitie Group will be well placed to build an enduring business and complete its transformation programme.
Based on the decent prospects, and supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the current market price of GBX 77.10 (as on 22nd June 2020, before the market close at 8:35 AM GMT+1) with lower double-digit upside potential based on 6.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
Goodwin Plc – Decent Performance in the Challenging Environment
FTSE All-Share listed Goodwin Plc (LON: GDWN) is into Industrial Engineering business headquartered in the United Kingdom. Its areas of operation are divided into two segments, i.e., Mechanical Engineering and Refractory Engineering.
The Company will announce its preliminary results in the week commencing on 17 Aug 2020.
Recent News
On 22nd June 2020, the Group has unveiled its largest purchase agreement and expected to result in substantial turnover for the business from the next financial year onwards. The long-term deal is to manufacture and machine storage boxes to assist with nuclear waste clean-up. The Group said this will further diversify its revenue streams and will likely reduce the oil and gas sector’s activity to less than 20 per cent from the previous 40 per cent.
COVID-19 and Liquidity Update
On 8th June 2020, the Group released its COVID-19 and liquidity update. The Group said the overseas operations have been working in accordance with their local legislation. The medium-term impact of COVID-19 is now clearer, and the Group confirmed that the manufacturing of engineering capital goods should continue positively as expected. The Company has a record forward order book of GBP 177 million. In Refractory business, the Group expects 20 per cent to 25 per cent reduction in consumer business activity for the next few months. The Group stays in a financially resilient position. The net debt and cash flow are in line with the Board's anticipations, while the Company only utilising around 50 per cent of its GBP 50 million traditional debt facilities.
Share Price Performance
1-Year Chart as at June-22-2020, before the market close (Source: Refinitiv, Thomson Reuters)
Goodwin Plc’s shares were trading at GBX 3,161.00 on 22nd June 2020 (before the market close at 8:15 AM GMT+1), which was up by 14.96% against the last day closing price. Stock 52 weeks High and Low are GBX 3,700.00/GBX 1,730.00.
Key Risks and Growth Catalysts
Being an Engineering Company, the GDWN needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the Company’s financial performance.Furthermore, the United Kingdom is facing the most significant slowdown in productivity presently. However, the new business in the pipeline will help the Company to expand its operations and to scale up its market share.
Conclusion
The Group's performance in the first half of 2020 was relatively flat driven by ratcheted uncertainty over Britain's political conditions, and Brexit related uncertainties were also at the peak, which has a material impact on the Group's profitability and earnings during the H1 FY20. Market and technological changes could affect the business of the Company. The Company expect an outbreak of Covid-19 may have an impact on the performance as it results in projects delays. Despite the uncertainty, the Group is confident towards its medium-term prospects. Moreover, the Company’s operations are also impacted negatively by fluctuations in the forex rates as the majority of currency pairs EURO, Sterling and US Dollar remained challenging.
Based on the above rationale, we recommend investors to keep a “Watch” on the stock at the current price of GBX 3,478.00 (as on 22nd June 2020, before the market close at 8:30 AM GMT+1), while we look for any upcoming catalysts.
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
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